Rental 1250 Gain

[Christian]

I am doing my annual client review and need to revisit a sale one of them made. He set up a former residence as a rental in 2011 using SL/GDS. After rereading any tax due on his gain I added back his prior depreciation to calculate it only to discover now this was likely a mistake and I need to provide him an amended return. After reviewing recapture rules I am reading that 1250 property set up after 1986 under SL is not subject to recapture so his tax was due on the difference between the depreciated value of the house and what he got for it. This being so I have some work to do to get this addressed.

[Abby Normal]

I can't follow that. What did you add the depreciation back to?

If the depreciation was correct in ATX, then the gain should have calculated correctly, if you enter the sales proceeds and expenses of sale correctly.

[Lee B]

 

I believe it is subject to recapture, accelerated depreciation is recaptured as ordinary income and the "unrecaptured Section 1250 gain" is taxed at a maximum of 25% .

[Christian]

He came to me some years back from an H&R Block office. The associate there  had set the rental up in 2011 using SL/GDS with a 27.5 year schedule. I will need to take some time to review the form I used and get back to you pointing out everything done. Well no I did not add the depreciation back. I used the second page of the Form 4797 lines 20 through 24. This took the original costs of his property and deducted his total depreciation which produced his adjusted basis which was then subtracted from what he got from the sale. Looking at this retrospectively it now looks to be correct after all. In a word he subtracted the depreciated basis of the house from what he got for it. I did not in fact recapture any of the depreciation which comports perfectly with my review I just finished. 

[Sara EA]

You did exactly right.  Depreciation recapture applies to pre-MACRS property.